Published on 21 Dec 2017.
RAM Ratings has reaffirmed the AA2/Stable/P1 financial institution ratings of AmBank (M) Berhad (the Bank), as well as the issue ratings of the Bank and its funding conduit, AmPremier Capital Berhad (Table 1).
Table 1: Issue ratings of AmBank and AmPremier Capital
| Rating |
AmBank (M) Berhad | |
RM1 billion Negotiable Instruments of Deposit | AA2/Stable |
RM2 billion MTN Programme (2008/2028) | AA3/Stable |
RM500 million Non-Cumulative Perpetual Capital Securities (2009/2069) | A1/Stable |
RM500 million Innovative Tier-1 Capital Securities Programme (2009/2069) | A1/Stable |
RM7 billion Senior Notes Issuance Programme (2010/2040) | AA2/Stable |
RM4 billion Tier-2 Subordinated Notes Programme (2013/2043) | AA3/Stable |
AmPremier Capital Berhad | |
RM500 million Subordinated Notes (2009/2069) | A1/Stable |
AmBank is the core banking subsidiary of AMMB Holdings Berhad - a mid-sized banking group that ranks sixth (by total assets) among its Malaysian peers. The Bank has resumed growth with a lending expansion of 7% in FY Mar 2017 and 8% (annualised) in 1H FY Mar 2018. Loan growth had been mainly driven by SMEs and residential property mortgages while the expansion of its auto financing had been marginal due to its group-wide portfolio-rebalancing strategy.
At 1.8% as at end-September 2017, AmBank’s gross impaired-loan (GIL) ratio was healthier than some of its larger peers’, which have been affected by their overseas operations. Thanks to strong recoveries, the Bank has been recording net impairment write-backs for 5 consecutive fiscal periods, since FY Mar 2014. However, credit costs are expected to eventually normalise even though there could still be lumpy recoveries. Meanwhile, there has been some weakness in the Bank’s commercial real estate and oil and gas loans. While further slippage from these portfolios cannot be ruled out, we do not expect the Bank’s overall asset quality to be affected much.
AmBank’s deposit franchise lags its peers’, with a high loans-to-deposits ratio of 97% as at end-September 2017 and a low proportion (20%) of current- and savings-account deposits (industry averages: 87% and 27%). Including non-deposit funding, its loans-to-funds ratio of 85% is more in line with peers’. Furthermore, the Bank’s liquidity coverage ratio is healthy and comfortably above 100% while its net stable funding ratio also exceeds 100%.
AmBank’s pre-tax profit declined 7% y-o-y to RM581 million in 1H FY Mar 2018, mainly attributable to lower impairment write-backs, leading to an annualised return on risk-weighted assets of 1.7% for the period. The Bank’s profitability is soft due to its comparatively thin net interest margin (1.9% in 1H FY Mar 2018) and relatively high cost-to-income ratio (54%).
Relative to its risk profile, AmBank’s common-equity tier-1 capital ratio of 11.4% as at end-September 2017 is sound. The implementation of Malaysian Financial Reporting Standards 9 effective April 2018 is unlikely to exert much capital impact on the Bank given that its GIL coverage ratio (inclusive of regulatory reserves) had been boosted to 101% (end-March 2017: 85%).
Analytical contact
Lim Yu Cheng, CFA
(603) 7628 1188
yucheng@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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